Japan jobless rate falls, spending up

August's industrial production pulls back in a surprise

AllenWan

TOKYO (CBS.MW) -- Japan received some generally positive economic news Tuesday as the unemployment rate fell much steeper than expected in August, while household spending grew modestly from year-ago levels.

The only negative news of note was a decline in industrial production, confounding economists who had expected an uptick ahead of the release of the key "Tankan" corporate sentiment survey on Wednesday.

Ahead of the open of financial markets here, the government announced that the unemployment rate fell to 5.1 percent in August from 5.3 percent in July. The news eased fears that Japan was experiencing a so-called jobless recovery.

Tokyo stocks rose on the news, while the yen tumbled against the dollar on suspected forex intervention by the Japanese central bank. See Asia Markets.

Economists had expected the jobless rate to stay at 5.3 percent, according to a Bloomberg poll. The jobless rate, which hit a record high of 5.5 percent earlier in the year, slipped to its lowest level in two years.

The number of unemployed fell 280,000 to 3.33 million last month, marking a third straight month of declines, the Ministry of Public Management, Home Affairs, Posts and Telecommunications said in a preliminary report. The number of employed fell for the first time in four months to 63.61 million, down 100,000, it said.

The ministry also reported that household spending rose at a real rate of 2.2 percent last month compared to August 2002 and gained 7.4 percent from July. The average monthly spending by households of wage-earners grew to 328,498 yen, it said.

Meanwhile, Japan's industrial production fell 0.5 percent in August from July, the Ministry of Economy, Trade and Industry said. Economists had expected a gain of 1 percent, according to a Reuters poll.

The index of industrial shipments gained 0.5 percent to 95.8, while that of industrial inventories fell 1 percent to 90.7.

However, Lehman Bros. economists Paul Sheard and Hiroshi Shiraishi said that data showing a big drop in Japan's jobless rate in August wasn't as good as it looked.

"The details of the report were not as positive as these figures suggest, with employment falling 180,000 on the month. In fact, the decline in the number of "unemployed" largely appears to reflect the fact that many people simply have stopped looking for jobs," they said in a note.

The economists were also muted about the rise in household spending last month, saying that even with the rise after a weather-affected 6.9 percent decline in July, average spending is down 1.2 percent in July and August form the second quarter, showing that "consumer spending remained weak in Q3."

Better Tankan expected

Analysts expect more positive economic data Wednesday, when the Bank of Japan releases its eagerly awaited "Tankan" survey of corporate sentiment for September.

Most economists expect the key big manufacturers index to turn positive for the first time in fully two years and nine months.

"I don't think it will be bad. The strong yen and reaction to it might affect the market a little, but the report itself shouldn't be too bad," said Haruki Takahashi, head of equity dealing at UFJ Tsubasa Securities.

Goldman Sachs' economists in Tokyo expect the large manufacturers' diffusion index to turn positive and is pegging a level of plus 2.

"Improving business environment, recovering sentiment helped by the rising equity market as well as the firmness in underlying corporate profit will contribute to a better tankan DI (diffusion index)," they said.

The index represents the percentage of companies reporting favorable business conditions minus those reporting unfavorable conditions. The key gauge designed to measure business sentiment among major manufacturers improved to negative 5 back in June. The June quarter's reading helped fuel a rally in the Nikkei that took it past the 10,000 level.

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